1. Field of the Invention
The present invention relates to methods and systems for appraising investments for manufacturing decisions. More particularly, embodiments of the present invention related to evaluating the so-called “make vs. buy decision”; that is whether a company should buy an item from outside sources or should instead make or develop the capability of making the item in house.
2. Description of the Prior Art and Related Information
Management of manufacturing concerns is often faced with the need to decide whether to make a required item or assembly in house or to buy the item or assembly from an outside supplier. However, such decisions are most often taken in an ad-hoc manner, without consistency between successive decisions and without a clear methodology for arriving at a defensible and fact-based decision. This has been the case even though many of the individual pieces of information needed to cogently make such a decision may already be separately available to the applications that present the information to the user.
The make vs. buy decision involves an estimation of the costs involved in producing the item or assembly in house, which estimated costs may be obtained from the costing and engineering departments, as well as an estimation of the costs to be incurred in sourcing suppliers of the item or assembly from a specification originated from engineering and/or marketing. At its core, the make vs. buy decision requires an evaluation of whether the difference between the make price and the buy price justifies the investment in the plant and equipment needed to manufacture in house volumes projected by the Materials Requirements Plan (hereafter, “MRP”). This is essentially an investment appraisal problem. Appraising such an investment requires answering a number of questions. For example, the decision maker must determine the amount (if any) that should be spent given the price at which the item or assembly may be purchased on the open market. Conversely, the decision maker should also determine how much to pay a supplier of the item or assembly given that the equipment needed to manufacture the item or assembly in house may be purchased for a known price.
Conventionally, the investment appraisal function is generally carried out under the auspices of the finance department. The supply base management, on the other hand, usually falls under the auspices of the purchasing department. To arrive at a principled and fact-based resolution of the make vs. buy decision often requires lengthy communication between the two departments. For example, such appraisal activities for manufacturing companies conventionally required extracting the required information form the enterprise system and inputting the extracted information into separate spreadsheets for offline analysis by finance staff. The implementation decision then has to be played back into the enterprise system. Therefore, the basis of the calculations is only known to the person that developed the spreadsheet. This approach to potential investment appraisal is inefficient, non-standardized and not integrated with the enterprise system where the relevant information resides.
From the foregoing, therefore, it is clear that improved methods, systems and tools for appraising potential investments and carrying out make or buy decisions are needed.